Federal student-loan forgiveness options grow

People in the public service and private sectors can have their remaining debt erased after years of on-time payments.

Dear Liz: I went to a very expensive art school at 17 and my education was funded totally by loans. I take full responsibility for what I owe, but because I had to defer payments a number of times throughout the years I now owe about $73,000 and I don't know how I will ever get out from under this debt.

I am a 38-year-old mom at this point with two small kids and I am saving for their education. There are programs to help young, single people but nothing for people like me, and it is frustrating. Why aren't there any services to help old people like me who want to pay but need help because we have other financial responsibilities at this point?

Answer: By "programs to help young, single people," you're probably referring to the various forgiveness programs that reduce or erase federal student loan debt when the borrower teaches in inner-city schools, serves in the military or volunteers for the Peace Corps, among other options.

But Congress recently created new possibilities for federal student loan forgiveness. People in public service jobs -- teachers, police officers, firefighters, social workers and others -- can have their remaining debt erased after 10 years of on-time payments. Even people who don't work in public service can get forgiveness after 25 years.

The people most likely to benefit from these programs are those with low incomes and high debt who opt for income-based repayment plans, which cap payments at 15% of your monthly discretionary income.

The financial aid website FinAid.org has information. (The recent student loan overhaul will reduce required payments to 10% of monthly discretionary income and allow loan forgiveness after 20 years, but only for students who take out new loans after July 1, 2014.)

If you have private rather than federal student loans, forgiveness is not an option and your choices for affordable loan plans are fewer.

Either way, you can't afford to continue ignoring this debt. Student lenders have strong powers to collect. They can attach your wages, seize your tax refunds and even go after future Social Security payments.

You must figure out a way to pay this bill, even if it means saving less or not saving at all for your children's educations.

Renter takeover a common scam

Dear Liz: I've noticed several ads on reputable websites that beckon renters to consider taking over mortgage payments for financially strapped homeowners. Typically, the payments are ridiculously low for sprawling estates in multimillion-dollar neighborhoods, so I've paid them little attention until recently. I saw an ad for a normal family home in a good neighborhood renting for well below market value.

Interested but cautious, I called the toll-free number and spoke to an actual person who said the company represents homeowners in pre-foreclosure. They try to match qualified renters (there was an income requirement, but no credit check) with struggling homeowners in a win-win situation: Renters get into desirable properties, paying "rent" directly to mortgage companies, and homeowners avoid foreclosure.

This matchmaking arrangement sounds logical and appealing for both parties. However, something that sounds too good to be true usually is. Still, I can't help but wonder whether there is a shred of legitimacy to such arrangements. If so, where can I find credible information and legitimate opportunities to help a struggling family while benefiting my own?

Answer: Think this one through a little more. Why would anyone -- homeowner or "rescue" company -- leave money on the table by charging below-market rents on desirable properties and to people of uncertain creditworthiness? Out of the goodness of their hearts? That's a stretch.

Just because an ad appears on a reputable website does not mean the advertiser is a reputable business. A common scam these days is for con artists to promise homeowners salvation from foreclosure by taking over their mortgage. The scammers rent out the house but simply pocket the rent payments. The home goes into foreclosure, the renters get evicted and no one wins but the bad guys.

Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 12400 Ventura Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com. Distributed by No More Red Inc.